George Calhoun

Legal Sports Report

February 1, 2017

How The Trump Administration Could End The Federal Ban On State-Regulated Sports Betting

Since his inauguration, President Donald Trump already has issued a dozen executive orders on topics ranging from immigration, to Obamacare, to energy policy.

The majority of his recent orders are designed to reverse his predecessor’s executive actions. Mr. Trump’s nominees also have begun shakeups in the executive agencies, with the senior staff of the Department of State all being asked to leave.

Given this flurry of executive action, can we expect an executive order or agency action that will impact the gaming industry?

The path to ending the federal sports betting ban

Possible action on the Department of Justice’s interpretation of the Wire Act has garnered well-deserved attention. But the administration is sure to weigh in on another big question: the enforceability of the Professional and Amateur Sports Protection Act of 1992 (PASPA), which is currently subject to a case seeking review in the Supreme Court.

What does PASPA do?

PASPA, makes it unlawful for:

(1) a government entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or

(2) a person to sponsor, operate, advertise, promote, pursuant to the law or compact of a government entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.

PASPA has been controversial since its inception.

When PASPA was first introduced, the DOJ wrote to then Sen. Joseph Biden to express its view that the law could raise federalism concerns.

But more recently, in 2013, the DOJ filed a brief in the lower courts defending the constitutionality of PASPA against New Jersey’s challenge. This shift highlights the reality that the positions of the DOJ change with time and, more importantly, with administrations.

PASPA and the current court challenge

PASPA (28 U.S.C. § 3702) does not require the use of interstate wire transmissions to be implicated. But read in connection with the Wire Act and UIGEA, it effectively outlaws all sports betting with extremely limited exceptions, most prominently the legal sportsbooks in Nevada.

New Jersey has challenged the law in federal court as part of its effort to legalize and regulate sports wagering.

New Jersey lost in the district court and in the Third Circuit Court of Appeals.

The fate of PASPA is now in the hands of the Supreme Court, which is considering whether to review the orders denying New Jersey’s challenge.

On January 17, 2017, the Court asked the US solicitor general to file a brief expressing the views of the United States. In light of the Supreme Court’s call for the views of the government on the fate of PASPA, all eyes are now on the new administration, which has sent decidedly mixed signals on gaming issues.

Administration could refuse to defend PASPA

Under President Trump, the DOJ could refuse to defend PASPA. Such an action would uphold the federalism principles often espoused by Republicans. But Attorney General nominee Jeff Sessions is known to oppose online gaming in general and sports betting in particular.

Ultimately, the position of the administration will be set out in the Solicitor General’s filing later this year.[1] That filing will factor heavily in the Supreme Court’s decision whether to decide New Jersey’s appeal.

If the administration reverses course, and refuses to back the law, it is more likely that the court will hear the case and overturn the law.

Can PASPA be impacted by executive order?

But given his first-hand knowledge of the gaming industry, Mr. Trump might take an alternative path to grease the skids for the growth of legal sports betting before the Supreme Court decides the fate of PASPA.

President Trump could take action by adopting one of President Obama’s precedents and issuing an executive order or agency directive governing the discretionary priority to be given to the prosecution of PASPA violations.

For example, in June 2012, the Department of Homeland Security issued a memorandum explaining that it would not take immigration action against certain individuals who came to the United States illegally as children. Similarly, an August 2013 Memorandum from Attorney General Eric Holder instructed federal prosecutors across the country to decline to impose criminal charges that would trigger mandatory minimum sentences for non-violent, low-level drug offenders. These directives were controversial, but commonly seen as an exercise of prosecutorial discretion in the face of limited resources.

President Trump undoubtedly knows that the legal sports betting in Nevada is estimated at less than one percent of the overall sports betting market.

As such, he could decide that it would be a waste of the government’s limited resources to seek to prosecute companies and individuals that operate or participate in sports gaming activity pursuant to a state regulatory regime such as that envisioned by New Jersey.

Instead, he could steer federal prosecutorial resources to illegal offshore gaming and unregulated bookmaking activities. Given Mr. Sessions’ hostility to online gaming and sports betting, such an action is unlikely.[2]

But Mr. Trump is nothing if not unpredictable and he has a long history of support for the New Jersey casino market. So, while it is unlikely that President Trump will exercise prosecutorial discretion in this, admittedly, controversial way, the door is open for him to do so.

If Mr. Trump meant it when he said the door is open for business, he could go a long way towards aiding US gaming interests and taking some of the sports betting world out of the shadows and out of offshore havens.

Revisiting the Wire Act

Another area where executive action appears possible is the interpretation of the Wire Act.

During his January 12, 2017, confirmation hearing, Jeff Sessions, the nominee for attorney general, was basically invited by Sen. Lindsey Graham (R-S.C.) to criticize the DOJ’s 2011 opinion interpreting the Wire Act as applying only to sports betting. Sessions had no hesitation in accepting that invitation, expressing his shock by the Department of Justice’s 2011 legal opinion.

Much ink has already been spilled as to whether the Department of Justice will reverse course under Mr. Sessions’ stewardship. DOJ action reversing its 2011 interpretation of the Wire Act is a real possibility.

Trump and Sessions might not see eye to eye

One solace in this is that Mr. Sessions’ views on gambling almost certainly differ from those of his boss.

The new president has a long history in the gaming world, having previously owned – or licensed his name – to several land-based casinos. In 2011, private citizen Trump was quoted as saying “(internet gaming) has to happen because many other countries are doing it and like usual, the U.S. is just missing out.”

Given this seeming dichotomy, the gaming industry is intensely curious concerning the new administration’s policies on a number of key gaming issues.

Footnotes

[1] There is no deadline for the Solicitor General’s brief in response to a call for the government’s views, but the Solicitor General typically will file briefs in May so that the Court will have the benefit of the government’s views prior to its summer session.

[2] Given the possible penalties, it doubtful that many companies that might otherwise be interested, including casinos, online gaming companies, banks or payment processors, would accept a prosecutorial discretion memorandum as a sufficient clearance to operate.